China's central bank launches swap facility to offer emergency liquidity to asset managers
TLT•China's central bank said it would establish a swap facility to provide emergency liquidity to non-bank financial institutions facing large-scale redemptions and help safeguard stability in the country's bond market.
1. Facility for liquidity stress
The People's Bank of China said the facility could be used when asset managers face collective liquidity risk or the bond market comes under systemic stress. Systemically important wealth management units and mutual funds, along with their parent firms, could borrow central bank bills to secure repo financing.
2. Use of borrowed funds
The institutions could use the funds to buy eligible bonds or units from their own mutual fund products facing redemptions, then pledge those assets to the central bank. The announcement follows the governor's statement last week that China would roll out a liquidity support tool for large-scale redemptions, in coordination with two financial regulators.
